Jefferson County Creditors Seek to Appeal Bankruptcy Ruling

Creditors of Jefferson County, Ala., plan to appeal a federal judge's March 4 ruling that rejected their demands to throw out the biggest U.S. municipal bankruptcy.

Bank of New York Mellon Corp., trustee for the county’s sewer debt, JPMorgan Chase & Co., which owns more than $1 billion of the sewer warrants, and other creditors filed a request for court approval to appeal the ruling simultaneously with filing notices of their intent to appeal, according to a filing on Monday in U.S. Bankruptcy Court in Birmingham.

Jefferson County filed for bankruptcy in November, after county, state officials, a court-appointed receiver, and bondholders failed to implement a tentative agreement that would have required its sewer debt to be reduced by about $1 billion.

Creditors had argued that Alabama state law requires cities and counties to have issued bond debt to be eligible for bankruptcy. The U.S. Bankruptcy Code allows states to set limits, or even bar, their cities and counties from filing for bankruptcy.

Because Jefferson County’s long-term debts were called warrants, not bonds, in all legal papers, Alabama law prevented the bankruptcy, creditors argued.

“An immediate appeal of this threshold issue will materially advance the ultimate termination of this case,” lawyers for the creditors said in today’s filing. “If the appellate court determines that the county is not eligible, as the movants contend, then the county’s Chapter 9 case will be dismissed and the parties will avoid tremendous costs and unnecessary litigation.”

The case is In re Jefferson County, 11-05736, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham).